Graduated
Mortgage Financing
Sources...
A graduated
payment mortgage is
designed to help the
first time home buyer
qualify
for loans by basing
repayment schedules
on salary
expectations.
With
this type of
mortgage, the
interest rate and
maturity are fixed
but the monthly
payment varies. For
example, a 10%,
$60,000, 30-years
loan normally
requires monthly
payments of $527 for
complete
amortization. Under
the graduated
payment mortgage,
payments could start
out as low as $437
per month the first
year, then gradually
increase to $590 in
the eleventh year
and then remain at
that level until the
thirtieth
year.
Since the
interest alone on
the $60,000 loan is
$500 per month, the
amount owed on the
loan actually
increases every
month. Only when the
monthly payment
exceeds the monthly
interest does the
balance owed on the
loan decrease.
The graduated
payment mortgage was
created by the U.S.
Department of
Housing and Urban
Development. The FHA
insures graduated
payment mortgages
under Section 245
and offers five
repayment plans,
each designed to fit
a different buyer's
particular needs. It
is expected that
this program will
likely appeal most
to the first-time home
buyers in the
$20,000 to $35,000
income range because
it enables them to
tailor their
installment payments
to their expanding
incomes, and thus
buy a home sooner
than under regular
mortgage financing.
Note, however, that
the down payment
required will be
somewhat larger than
the 3% to 5%
required on standard
FHA 203(b)
mortgages. This is
because the FHA
stipulates that the
mortgage cannot
exceed 97% of the
house value,
including deferred
interest. To be more
attractive to
lenders, an
adjustable graduated
payment mortgage is
now available and
should be utilized especially
by first time home buyers. It
combines variable
interest provisions
with graduated
payment
features.
Graduated
Payment Mortgage To
Blended Rate Loan
|
